Frontier stands to lose $1.5 million for broadband in W.Va.; Company wants waiver from rules change

CHARLESTON, W.Va. -- Frontier Communications stands to lose $1.5 million a year in federal subsidies -- money the company uses to expand high-speed Internet in West Virginia -- unless the Federal Communications Commission waives new rules that take effect July 1.

The FCC is soliciting comments about Frontier's waiver request through Feb. 11, the agency announced earlier this week.

Frontier contends FCC's new rules would unfairly penalize the company because it has a variable rate structure in West Virginia.

"[The waiver] will prevent Frontier from losing money that is used for broadband expansion," said Dan Page, a company spokesman.

For years, rural telecommunications providers such as Frontier have received federal subsidies to provide telephone service in high-cost rural areas.

The money comes from the federal "Universal Service Fund," which makes phone service available and affordable in the nation's most rural communities.

The federal fund is financed by extra charges for long-distance calls tacked onto phone customers' bills. The Universal Service Fund pays out about $4.3 billion to telecommunications companies each year.

The new FCC rules are designed to ensure customers of Frontier and other companies are paying a minimum contribution to the telecommunications network that serves them.

Companies that charge local rates below the FCC's minimum rate stand to lose universal service funding.

West Virginia has a rate structure that's different than other states. Phone companies here offer customers four separate calling plans.

The cheapest plan -- at $7 a month -- charges extra for each phone call. The most expensive plan offers a flat rate of $29 a month, and there's no additional charge regardless of where you call or how long you talk.

Nearly 70 percent of phone customers in West Virginia have the flat-rate plan.

Starting in July, the FCC will require phone companies to charge a minimum of $14 a month to qualify for federal subsidies -- $7 more than Frontier's lowest rate in West Virginia.

"Frontier will stand to lose about $1.5 million in universal service support until the FCC's rules are changed," Page said.

Frontier requested the waiver because customers pay $25 a month on average for phone service in West Virginia.

"[It's] well above the rate floor, indicating that West Virginia customers already are making a substantial contribution to the network serving them," Page said. "Frontier is asking the FCC to allow the use of an average rate for the purposes of compliance with the FCC rate benchmarks when a state has optional rates like West Virginia."

The FCC is expected to decide on Frontier's waiver request sometime before July 1.

The FCC previously announced plans to phase out the Universal Service Fund and replace it with the "Connect America Fund," which would subsidize companies such as Frontier that want to expand high-speed broadband service in rural areas. So future universal service fees collected from customers would be earmarked mostly for broadband projects.

Byron Harris, consumer advocate for the state Public Service Commission, said he has talked with Frontier executives about the FCC rule change. He supports the company's waiver request.

"If the FCC grants the waiver," Harris said, "there would be more money available to expand access to broadband in West Virginia, and that's a good thing."